Purdue officials announced the former White House budget director and Eli Lilly executive would be the university's 12th president following a unanimous vote by the school's Board of Trustees, eight of whom were appointed by Daniels. One trustee was out of the country and did not vote.
The governor will replace France Cordova, who is stepping down in July after five years at Purdue's helm.
"He's a visionary. He's a strategist. He's an innovator. But most of all, he's a doer," said trustee Chairman Keith Krach.
Daniels will take office in January once his second term as governor expires. He said his appointment ends the possibility that presumptive nominee Mitt Romney might tap him as a running mate or, if elected, to a Cabinet post. He said he won't be involved in partisan politics after making one last out-of-state appearance this weekend.
"No campaigning, no commenting about anybody's campaigning -- in the state or out state or anywhere else -- no fundraising, nothing. I won't be a delegate to the national convention," he said.
Daniels, 63, is expected to bring a business-minded approach, fundraising skill and an image as an efficient manager to the new job. But he'll also find himself on the flip side of a challenging education environment that has seen state money for public institutions decline dramatically in recent years.
Daniels, wearing a black and gold tie given to him by former Purdue President Martin Jischke, talked about speculation by some about whether there are too many students going to college and whether what they are learning is worth the expense, and that some say the traditional residential campuses may change.
"I do think there are some unprecedented challenges to higher ed, and I see a real opportunity for Purdue to manage whatever evolution is coming better than most," he said.
Daniels said he understands people who question his credentials and said he plans to show he is worthy of the job, relying heavily on provost Timothy Sands and others to help him. Sands will serve as interim president until Daniels takes office.
"My single highest objective, and I'm going to start working on that right away, is to build personal relationships and better understanding," Daniels said.
Daniels said he would spend much of the next six months asking questions and listening.
"I've not made a life in the academy, but I have spent my life reading and admiring and attempting to learn from those who do," he said.
Krach said terms of the contract are still being worked on, but said a memorandum was in place. Search committee Chairman Michael Berghoff said the contract will be for at least five years.
As governor, Daniels ordered $150 million carved out of state higher education funding in December 2009 as the state's revenues declined. Purdue's state funding has fallen from a peak of $262 million in 2008-09 to $233.9 million for the just-completed school year.
The university also came under fire from state lawmakers over its tuition increases at the height of the recession.
Purdue's in-state tuition rates have risen by as much as 62 percent since 2004, according to figures provided by the university.